Suppliers around the world are facing higher rates of return today, in part due to more generous return policies, shifting consumer expectations, and increased e-commerce activity. But this imposes a significant and growing financial burden on businesses. The rate of return on products, also known as reverse logistics, can be mitigated when suppliers work to improve the speed, cost and efficiency of shipping goods. Vendors feel the pain of product returns more than most because they handle returns that stem from the retail, e-commerce, and wholesale channels. Fortunately, some reverse logistics strategies can be used to mitigate the cost.
Return and repair policy framework in reverse logistics
Returns are supported by consumer choice. There is $ 550 billion in returns that move through the economy each year because it is a competitive necessity. But still, there are concerns about efficiency and effectiveness.
Retail is faced with a large number of repairs. Companies have made it easier for customers to return products to maintain a competitive advantage over other companies, but as a result, almost half of the products that are purchased are returned to their suppliers and returns have increased dramatically. Having a generous return policy has become commonplace in today’s competitive retail environment, but it is imperative that retailers also take steps to prevent customers from abusing these policies. Some companies like Amazon have begun to change the way they handle reverse logistics, so that customers who buy and return products will routinely have their accounts closed without notice. Manufacturers and retailers alike must work together to ensure that abusive practices do not occur. At the same time, for low-cost items, some companies are choosing to avoid asking their customers to return old products when looking for a replacement. Instead, the company ships the replacement. This is a fiscally sound strategy that reduces reverse logistics costs for organizations.
Collaboration within the retail community
It is essential for manufacturers and suppliers to better examine their supplier agreements in order to better enforce collaboration. Pricing has generally been a point of contention, and for that reason, companies should re-evaluate the return policies they have in place. Manufacturers generally don’t enjoy processing returns because there was a lot of overhead and a lot of disputes, especially when it came to wholesale customers. Returns are a major problem among the electronics industry, where they cost an additional $ 10 billion each year. Figuring out how to handle these returns has been a challenge faced by suppliers around the world. In the past, manufacturers accepted returned products because they wanted to maintain a good brand reputation. But that is no longer the case. Collaborating with manufacturers and suppliers is now eliminating additional responsibilities that reverse logistics would otherwise create. Electronic products that are returned are disposed of and shipped elsewhere where approximately 95% of those returned products are simply resold rather than written off as a loss.
Use of data and information in reverse logistics
Vendors are now looking for a trusted third-party platform that can be used to help sort and process returns. Having a centralized location for data processing can help you economically handle returns and liquidate any inventory that is left behind. Businesses can still grow with a low baseline as long as the cost of returns is reduced. Having a centralized location for data makes this much more manageable.
Suppliers can use elements like sensors and connectivity to monitor problems in the field, fix problems within their products, and repair those problems to minimize the speed at which customers return products. Products can also be connected to software and operating systems that allow vendors and manufacturers to update them from anywhere. Hardware and components that are easy to replace can be shipped to customers as soon as a problem is detected so customers can complete self-repairs. This process alleviates the need to return products in full. On the back end, making better use of existing data gives companies the tools they need to predict when returns will occur. They can track the volume of returns, what condition the products were in when they were returned, why the products were returned, and the dollar amount. By having all this information in one place, suppliers can predict problems and predict the condition of returned merchandise so they can plan accordingly.
Also read our article on Ways to use AI for supply chain optimization
Challenges and logistics solutions in reverse logistics
Using online shopping and delivery systems requires coordination within the retail community. There needs to be better handling of heavy and bulky products, after-sales service and responsiveness.
As more people continue to buy products online, the cost of transportation increases. Logistics is spending a total of $ 1.5 trillion on transit alone. Processing returns for larger items such as televisions, furniture, and equipment is not only challenging, but also very expensive due to transportation requirements. Suppliers are trying to reduce this cost by combining delivery and collection. Replacement items are shipped to the customer and the returned item is collected at the same time so that only one trip is required. New infrastructure is another alternative that helps improve returns efficiency, especially when existing facilities are expanded. It is very common for vendors to handle all their processing in a single facility when it would be better to separate facilities.
You need to respond to customers and, of course, some investment is required. With an increase in online customer purchases, the customer return rate has increased. Suppliers are working very hard and must continue to do so to address the increasing rate of return. There have to be areas where returns can be mitigated, predicted, and returned items can be resold, all of which work together to minimize cost.